Corn exports could reach USDA goal
With only two weeks remaining in the 2005-06 corn marketing year, export sales look as though they are able to hit the USDA target of 2.1 billion bu. Domestic demand remains very strong, at least into the end of 2006 for feed use purposes and ethanol well into 2007 as long as NYMEX gas futures offer a platform to hedge against. Bearish to corn futures is non stressful weather and a likelihood of USDA raising yield and production in its Sept 12th crop report. Also bearish to corn futures is the prospects for a record China corn crop which could permit a fierce Asian competitor to resurface into the late winter-early spring of 2007.
CFTC/Price Report: with Friday's release of the latest CFTC report, it has now been four consecutive weeks were they have reduced longs in its combined futures and options position. Our special report held within our web site does show how funds have lifted a sizable portion of its long position. There is some ideas of a pre harvest bottom. Our custom report does show how even leaving the 2003 marketing year when global stocks were the tightest dating back to 1990, funds still managed to push its position down. Given the maturity of this years crop, we do not see weather as much of an influence as most late Aug-early Sept time frame and see little reason why funds would alter its typical fall pattern by pressing futures lower. However we are sticking with our plan which suggest as futures press lower into the early stages of fall harvest how demand is likely to tapped in a big way and set off for a rally into March of 2007.
Marketing: Our new crop hedges are in the July 2007 futures. We have covered a third with 270 May calls and in early Sept will add the second third, also using the May options. Both futures and cash typically find its high very near the March 31st planting intention report and a big reason why we prefer to use the May options which expire the third week of April. No sense in spending more for time value by using the July options to cover hedges. We do plan to add the last third of the call position in early October. Research we completed today does show that even when entering a new marketing year and projected end stocks cut sharply, futures find a way to work lower into the harvest.
Crop Condition: A subscriber to our Allendale report on our web site called and pointed out how 2006 corn conditions could be building a similar pattern as the 2005 corn crop when looking at the graph. The question is "was there much adjustment from the Aug to Sept crop report in yield and production. The specifics are yield from the Aug 2005 crop production report into the Sept did increase by 4 bu per acre and increased production by 289 mil bu. If USDA were to find a reason to adjust this Sept's yield by 4 bpa acre, it would suggest an ave yield of 156.2 bpa and production of 11.264 and potentially adjust end stocks from 1.232 bil bu to 1.52 bil bu and likely press prices into LDP ave range levels of 5 to 15 cents by early to mid October. Our thanks to Jim of Ohio for catching the similarity in crop condition and the questions.